Better Than Cash: Kenya Mobile Money Market Assessment November 2011 This report was produced for review by the United States Agency for International Development. It was prepared by Accenture Development Partners under the Global Broadband Initiative. The author of the report is Loretta Michaels. DISCLAIMER: The authors’ views expressed in this report do not necessarily reflect the views of the United States Agency for International Development of the United States Government. Table of Contents ACRONYMS .......................................................................................................... 3 EXECUTIVE SUMMARY ....................................................................................... 4 SECTION I. INTRODUCTION AND PURPOSE .................................................... 6 SECTION II. CURRENT STATE OF KENYAN MOBILE MONEY MARKET ......... 8 SECTION III. HOW IS MOBILE MONEY BEING USED TODAY ........................ 17 SECTION IV. USE OF MOBILE MONEY BY USAID PARTNERS ...................... 29 SECTION V. KEY SECTORAL ISSUES AND CHALLENGES ............................ 38 BETTER THAN CASH: KENYA MOBILE MONEY MARKET ASSESSMENT 2 ACRONYMS ABEO Agriculture, Business & Environment Office API Application Programming Interface B2P Business-to-Person CBK Central Bank of Kenya CALP Cash Learning Partnership DG Democracy and Governance EFT Electronic Funds Transfer ERP Enterprise Resource System FI Financial Institution GSM Global System for Mobile Communications ICT Information and Communications Technology m-banking Mobile Banking MFI Microfinance Institution MIS Management Information System MOF Ministry of Finance MNO Mobile Network Operator NGO Non-governmental Organization OFDA Office of Foreign Disaster Assistance OPH Office of Public Health P2B Person-to-business P2P Person-to-Person POS Point of Sale Terminal RTI Research Triangle Institute SACCO Savings and Credit Cooperative Society SIM Subscriber Identity Module SME Small and Medium-scale Enterprise SMS Short Message Service STK SIM Toolkit USSD Unstructured Supplementary Service Data USAID United States Agency for International Development WAP Wireless Application Protocol BETTER THAN CASH: KENYA MOBILE MONEY MARKET ASSESSMENT 3 EXECUTIVE SUMMARY In the last dozen years mobile technology has flourished throughout the developing world faster than any other technology in history. With that growth comes an equally impressive surge of messaging services, providing not just a broadly used means of personal communications, but also a number of valuable information services, from agricultural data reports to healthcare reminders. The latest phenomenon spawned by mobile technology is mobile money. This trend is providing money transfer services to millions of previously under-served people in the developing world, allowing them to safely send money and pay bills for the first time without having to rely exclusively on cash. The global leader in mobile money is Kenya, where mobile network operator Safaricom launched M-Pesa in 2007. Less than five years after launch, there are approximately 16 million users of mobile money in Kenya, conducting over 2 million transactions every day. M-Pesa is not only being used for standard money transfers and airtime purchase, but also to pay salaries, utility and other bills, and to buy goods and services at both online and physical merchants. Three other mobile operators have also begun to offer mobile money services in Kenya – Airtel, Orange, and Essar (Yu) – and other players have recently emerged to offer complementary services. In addition, many aid donors and their implementing partners have already begun to integrate mobile money into their programs and are at the forefront of this learning opportunity. Given this unique learning laboratory for the use of mobile money, both generally and within aid programs, Kenya was chosen for a field visit by United States Agency for International Development (USAID) staff to better understand the use of mobile money today within USAID’s programs. The purpose of the trip was to interview partners to identify the various ways they were using mobile money and determine the key benefits and challenges they faced, with a view to forming an initial opinion of how USAID/Kenya might best support both the sector and its implementing partners in their efforts. Based on our research and interviews, we observed the following about the state of the mobile money sector in Kenya: - The focus of mobile money is primarily on driving its innovative uses within programs and businesses, rather than pure growth in usage. The sector already enjoys a great deal of support from government and other parties, and is currently experiencing phenomenal growth on its own. - Many of USAID/Kenya’s implementing partners are already using mobile money within their operations and for program delivery, to varying degrees. - Partners report that accessing corporate accounts is difficult and time- consuming, especially with Safaricom. This prevents the use of mobile BETTER THAN CASH: KENYA MOBILE MONEY MARKET ASSESSMENT 4 payments in operations and programs. - USAID/Kenya can support this sector by encouraging collaboration and providing general information and education to partners that are trying to implement mobile money. The level of knowledge of the programmatic support options available when implementing mobile money solutions (and the costs of those options) varies widely among USAID partners. - An area of concern to implementing partners is the degree to which USAID and other donors will accept electronic mobile money transaction records in place of current practices around physical signatures and paper receipts. Developing a consistent policy around these mobile money transactions would be of great use to partners. BETTER THAN CASH: KENYA MOBILE MONEY MARKET ASSESSMENT 5 SECTION I. INTRODUCTION AND PURPOSE Two industries that have seen phenomenal growth and impact in developing countries in recent years are mobile communications and microfinance. Both are acknowledged today as major catalysts for economic growth and social development, bringing opportunities that did not exist before to urban and rural populations1. In the case of mobile telephony, operators are experiencing adoption rates that far exceed expectations, given the levels of literacy and technological sophistication in emerging markets. While the two industries have grown independently of each other and for different reasons, they share an important characteristic: they broaden the reach and coverage of their respective sectors - communications and financial access - into populations that could not previously access or afford such services. It is therefore no surprise that efforts have been made to link mobile communications and microfinance through the development of mobile money solutions. The rapid growth of mobile payments technologies in the last few years, particularly in Kenya, South Africa, and the Philippines, has proven that there is latent demand for such services and that there is a willingness to adopt and pay for the technology among low-income users. At the same time, governments, banks and microfinance institutions (MFIs) have realized that extending financial services to the base of the pyramid via mobile technology can significantly lower the cost of delivery, including overhead costs for buildings and staffing branches, as well the costs to customers of accessing services (e.g., travel or queuing time, travel costs, security issues). There are significant benefits to be gained by the use of mobile technology by financial services providers, especially in rural areas, in the form of cost savings, efficiency, fraud and error reduction, client security and convenience. However, many attempts around the world to do so are progressing very slowly, in some cases for reasons related to implementation or regulatory constraints or because providers initially focused on unsophisticated MFIs as partners2. Despite these challenges, there is a great deal of excitement about the possibilities of mobile money technology to extend financial services into underserved areas, and the successful performance of some of the current offerings provides a great deal of encouragement to efforts to prove the concept worldwide. Equally exciting is the fact that the ability to conduct financial transactions remotely is also proving beneficial to the operations of a number of non-finance related organizations, especially in the world of aid and development. The market leader in the use of mobile money is Kenya. When mobile network 1 L. Michaels, A. Hammond, "GSMA Development Fund Top 20: Research on the Social and Economic Impact of Mobile Communications in Developing Countries," August 2008 2 See Appendix I for a brief discussion around the challenges faced by MFIs in early mobile money implementation efforts. BETTER THAN CASH: KENYA MOBILE MONEY MARKET ASSESSMENT 6 operator (MNO) Safaricom launched M-Pesa in 2007, it reached its first year subscriber targets in just two months, and growth has continued apace ever since. The reasons for M-Pesa’s success have been studied extensively, and observers generally agree on several contributing factors: a large underserved population with few alternatives for financial services; a demographic profile that saw significant numbers of adults migrate to cities like Nairobi in search of work, while retaining strong familial and financial links to their home villages; a trusted mobile network operator with